Frank v. Blum

Filed 8/9/07 Frank v. Blum CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of Riverside County. James A. Cox, Judge. Reversed with directions.

Schlecht, Shevlin & Shoenberger, John C. Shevlin; and William R. Jaymes for Plaintiffs and Appellants.

Best Best & Krieger, Douglas S. Phillips, Kira L. Klatchko; and Michael S. Kahn for Defendant and Respondent.

The probate court was asked to find that the sale of a beneficiarys interest in a testamentary trust violated a trust provision against voluntary alienation. The court was also asked to find that the sale violated a no contest clause in the decedents will.

The probate court found that the sale did not violate the anti-alienation provision and denied the petition. It also rejected the attempted application of the no contest clause.

Applying a de novo standard of review, we disagree with the probate court and agree with plaintiffs that the sale violated the anti-alienation provision of the trust. However, we agree with defendant that the no contest clause of the will is inapplicable because it was not incorporated into the decree of final distribution.

I. FACTS

Fay Liebling died in 1975. She had three daughters: Sylvia Goffen, Eleanor Becker, and Esther Frank. Each of the daughters is now deceased.

Fay Lieblings 1969 will was filed on June 3, 1975. It divides her assets among two testamentary trusts. Trust B divides the assets of that trust among the three daughters. In 1978, the distribution provision was interpreted to mean that, after the death of a daughter, her share in the net income of the trust would be distributed per stirpes to her issue until the trust terminates. The trust terminates when the three daughters have died and there is no living grandchild under age 21. At that time, which has apparently now arrived, the trust assets will be distributed per stirpes. (Prob. Code,  246.)^[1]

Fay Lieblings will provides that: The interests of beneficiaries in principal or income of Trusts A and B shall not be subject to claims of their creditors or others nor to legal process and may not be voluntarily or involuntarily alienated or encumbered. In 1977, an amended decree of distribution specifically incorporated this provision as part of Trust B.^[2]

Fay Lieblings will also contains a broad no contest clause. The 1977 amended decree of distribution does not specifically incorporate the no contest clause into the stated terms of Trust B. The parties disagree as to whether the no contest clause is part of Trust B.

On March 25, 2004, Jonathan L. Blum, a grandson of Sylvia Goffen, sold his beneficial interest in the Liebling trust for $350,000. The purchaser was the DCH Trust. The DCH Trust was a trust for the benefit of three other grandchildren of Sylvia Goffen, namely, David Blum, Carol Blum Feuer, and Howard Blum.

On January 11, 2006, Esther Frank and her son, Don Frank, filed the subject petition.^[3] After reciting the facts and quoting provisions of Fay Lieblings will, the petition alleges that Jonathan Blum sold his beneficial interest in the trust to the DCH Trust in violation of the anti-alienation clause.

The petition further alleges that, as a result of the operation of the no contest provision of the trust, the value of the transferred interest has been reduced to one dollar with the balance of the value of said interest augmenting proportionately the shares of the trust estate held for the benefit of the trust beneficiaries who did not participate in said transaction. The petition further alleges that the beneficial interests of the purchasers of Jonathan Blums beneficial interest, i.e., David Blum, Carol Blum Feuer, and Howard Blum, should also be reduced to one dollar, and the balance of their interests should also be transferred to the nonparticipating trust beneficiaries.

Lawrence J. Blum, father of David Blum, Carol Blum Feuer, and Howard Blum, is the trustee of Trust B. He filed a response to the petition which admitted the family relationships and the sale of Jonathan Blums beneficial interest. If the sale was voided, he argued that the consideration should be returned to the purchasers. He also contended that the sale did not violate the no contest clause of the will.

After several hearings and the filing of supplemental declarations and points and authorities, the trial court denied the petition. The court stated that the transfer did not violate the intent of the settlor of the trust, Fay Liebling: It appears to me that the intent of her trust was to prevent . . . the assignments of interests to benefit creditors and I dont believe it was a violation of her intent for a transfer among family members, the people she intended to benefit in her trust. [] In looking at this, under the circumstances that it appears to me that the transferring relative received, basically received his interest in the trust. He just received it a little early by transferring it to his cousin.

II. STANDARD OF REVIEW

Since the only issues in this case involve the determination of the meaning of clauses in Fay Lieblings will and testamentary trust, and the relationship between them, only legal issues are presented, and our review is a de novo review. [I]n any case where extrinsic evidence is completely lacking or the quantum and quality thereof does not in reason place the trial judge in a better position to form an accurate interpretation of writings, or in other words, where interpretation is essentially a question of law rather than of fact, an appellate court is not bound by the determination of the trial court. (Estate of Shannon (1965) 231 Cal.App.2d 886, 890-891.)

A. The Violation of the Anti-alienation Clause

The basic facts are undisputed: Jonathan Blum sold his beneficial interest in the Fay Liebling Trust B for $350,000, despite the clear language of the anti-alienation clause. The anti-alienation clause is contained in the will, and it is expressly incorporated into the terms of the trust by the decree of distribution.

To avoid the conclusion that the sale violated the anti-alienation clause, defendant argues that the entire decree of distribution must be read in context, and not on a clause-by-clause basis. Defendant cites Estate of Bateman (1962) 205 Cal.App.2d 792, 795 and Estate of Keller (1955) 134 Cal.App.2d 232. Over the centuries covering the history of wills and the probate thereof, many ingenious rules have been promulgated as aids in the interpretation of testamentary provisions which have been questioned. Throughout the numberless decisions on the subject, however, there has survived the cardinal rule that what the testator intended to accomplish is to be gathered if possible by giving the most ordinary interpretation to the language used without resorting to specious and fanciful reasoning. [Citations.] Courts are not invested under the guise of construction with the privilege of rewriting a testators will. [Citations.] The testators words and all of them should be considered in the light of common sense and given effect if it appears that violence to this simple virtue will not result in so doing. [Citation.] (Id. at pp. 235-236.)

The applicable statutes also require us to ascertain the intention of the testator as expressed in the instrument. ( 21102, subd. (a).) The words of an instrument are to receive an interpretation that will give every expression some effect, rather than one that will render any of the expressions inoperative. ( 21120, subd. (a).)

Applying these basic principles, defendant argues that the settlor intended to keep the trust property in the family by making her three daughters and their children and grandchildren per stirpes beneficiaries of Trust B. From this, defendant argues that an intrafamily transfer to a cousin was permissible because [Jonathans] interest in the Trust went to other members of the class designated as Sylvias heirs.

In other words, because both the seller and the buyers were descendants of Sylvia Goffen, defendant argues that the sale maintained a distribution of Sylvias one-third interest in the trust to each of her daughters. Fay Liebling clearly wanted each of her daughters to have a one-third share of the trust assets, and she wanted her grandchildren and great-grandchildrens shares to be based on each one-third share. Defendant argues that application of the anti-alienation clause would upset this plan, especially if it involved a redistribution of asset values under an application of the no contest clause.

However, the anti-alienation clause prohibits voluntary sale of a beneficiarys interest, and it contains no exception for intrafamily transfers. In considering the settlors intent, we find it significant that Fay Liebling did not want any distribution of principal until her three daughters had died and the grandchildren were over age 21. By allowing the sale of a beneficiarys interest, the trial court allowed a beneficiary, Jonathan Blum, to sidestep this provision and receive cash for his share prematurely. Although the trial court acknowledged this effect, it did not find a violation of the anti-alienation provision.

Allowing intrafamily transfers for cash would defeat the purpose of the anti-alienation provision, and would thus be contrary to the settlors intent of protecting principal from impecunious beneficiaries and creditors. Indeed, defendant concedes that Fay Liebling intended to prevent creditors from having access to the funds she dearly wanted to keep in the family.

Defendant also argues that other language in the trust allows for some flexibility in handling trust property because the trustee has broad powers to dispose of the property, to allocate additional funds to needy beneficiaries, and to allocate funds between income and principal. While we agree with defendant that these powers are given to the trustee, they do not show that Fay Liebling intended to give beneficiaries similar powers. As to beneficiaries, Fay Liebling clearly intended that they would not receive their share of the trust until they were over 21 and all three daughters of Fay Liebling had died. By allowing an intrafamily transfer of a beneficarys interest, the trial court ignored this intention and allowed a beneficiary to cash out prematurely.

As a result, the trial court failed to give effect to section 15301, which provides, with exceptions not here relevant, that if the trust instrument provides that a beneficiarys interest in principal is not subject to voluntary or involuntary transfer, the beneficiarys interest in principal may not be transferred and is not subject to enforcement of a money judgment until paid to the beneficiary. (See also  15300, which contains a similar provision for transfers of trust income.)

We therefore conclude that the anti-alienation clause means what it says and says what it means: a voluntary sale of a beneficiarys interest is not permitted. Our interpretation is bolstered by the clear intent of the settlor to prevent beneficiaries from receiving a share of trust principal prior to termination of the trust.

We therefore agree with plaintiffs that the trial court erred in denying the petition on this ground. The trial court should have voided the transaction and restored Jonathan Blums interest in the trust upon repayment of the consideration for the sale.^[4]

B. The Inapplicability of the No Contest Clause

Plaintiffs entire argument on the applicability of the no contest clause to Jonathan Blums sale of his beneficial interest in the trust depends upon the assertion that the no contest clause of the will became a provision of Trust B. The trial court rejected this argument as a red herring.

Defendant argues that the 1997 decree of distribution is the governing document because it expressed the entire terms of the trust, without including the no contest clause from the will. Defendant cites the early case of Keating v. Smith (1908) 154 Cal. 186. In that case, our Supreme Court said: The will attempted to create a trust which, considered by itself, was no doubt invalid . . . . The validity of the trust is, however, no longer open to question. The decree of the superior court distributing the residue of the estate to trustees upon certain trusts is a conclusive adjudication of the validity of the disposition made by the testator. [Citations.] [] And it is equally conclusive as an ascertainment and adjudication of the terms of the trust, and of the rights of all parties claiming any legal or equitable interest under the will. [Citations.] The decree supersedes the will and prevails over any provision therein which may be thought inconsistent with the decree. [Citation.] In determining the rights of the widow, we are, therefore, to look, not to the terms of the will, but to those of the decree of distribution. (Id. at p. 191.)

In a later case, our Supreme Court reiterated that [i]t is settled, and the Lorings concede, that a decree of distribution that has become final is a conclusive determination of the terms and validity of a testamentary trust and of the rights of all parties thereunder. [Citations.] (Estate of Loring (1946) 29 Cal.2d 423, 427.) Here, the decree of distribution restated the terms of the trust but it did not include the no contest clause of the will in those terms. Accordingly, the terms of the trust did not include the no contest clause. (Estate of Lindstrom (1987) 191 Cal.App.3d 375 [no contest clause in will did not apply to inter vivos trust].) The language of the no contest clause supports this interpretation because it is expressly applicable to persons who contest the will, directly or indirectly.

Defendant cites Estate of Callnon (1969) 70 Cal.2d 150 and Goad v. Montgomery (1898) 119 Cal. 552. In Callnon, our Supreme Court said: The administration of a decedents estate involves a series of separate proceedings, each of which is intended to be final . . . . [Citations.] A decree of distribution is a judicial construction of the will arrived at by the court ascertaining the intent of the testator. [Citations.] Once final, the decree supersedes the will [citations] and becomes the conclusive determination of the validity, meaning and effect of the will, the trusts created therein and the rights of all parties thereunder. [Citations.] (Estate of Callnon, supra, at p. 156, fn. omitted.)

The Callnon court also said: If the decree erroneously interprets the intention of the testator it must be attacked by appeal and not collaterally. [Citations.] If not corrected by appeal an erroneous decree . . . is as conclusive as a decree that contains no error. [Citations.] It is well settled that where the decree of distribution is contrary to the provisions in the will, the decree controls and prevails over the terms of the will with respect to the distribution of the property. [Citations.] Only if the language of the decree is uncertain, vague or ambiguous [citation] may resort be had to the will to interpret but not to contradict the decree. [Citations.] However, if the distributive portions of the decree are free from ambiguity, . . . resort may not be had to the provisions of the will . . . in order to create an ambiguity. [Citation.] (Estate of Callnon, supra, 70 Cal.2d at p. 157, fn. omitted.) Callnon thus supports defendants position that the provisions of the decree of disposition establish the terms of the trust and govern its interpretation.

Although plaintiffs argue that Callnon does not hold that the provisions of the trust consisted only of the provisions of the will found in the decree of distribution, the case nevertheless prevents reference to provisions in the will when, as here, no ambiguity is shown. This is especially true when a no contest clause is involved, because such clauses are strictly construed. ( 21304.) The decree simply does not include the no contest clause as one of the provisions of the trust. Nor does it incorporate the entire will instead of restating the trust terms in the decree of distribution.

In Goad, our Supreme Court also held that a will was superseded by the decree of distribution: The decree of distribution is the instrument by virtue of which the plaintiffs have received the property in trust for the children, and their powers and duties in regard to that property are to be measured by the terms of this decree. For the purpose of enabling the superior court to distribute the estate of a testator in accordance with his will, it is required to consider the will as well as the estate left by him, and to construe its terms for the purpose of determining his intention, and make its order or decree of distribution in accordance with such construction; but, as in the case of a judicial determination of any other instrument, the instrument is but evidence upon which the court acts in rendering its judgment. The judgment is the final determination of the rights of the parties to the proceeding, and upon its entry their rights are thereafter to be measured by the terms of the judgment, and not by the instrument. A will can no more be used as evidence to impeach the decree of distribution than can any other evidence upon which a judgment is rendered. . . . The decree is conclusive, not only as to the persons who have any rights in the estate, but also as to the extent and limitation of their rights. Whether the distribution is to individuals in their own right, or to hold for others under specified trusts, the rights of all parties interested in the estate are determined by the decree, and thereafter it becomes immaterial to consider whether the will has received a proper construction. The court may incorporate the provisions of the will in its decree, either in express terms or by reference thereto, as was the case in Goldtree v. Thompson, [(1889)] 79 Cal. 613, where the decree distributed the property to the trustees to hold in the manner named and set forth in the will, and to which reference is hereby particularly made as a guide to the trustees in the discharge of their trust. In such a case, the terms of the will become the language of the decree, but it is still the decree, and not the will by which the rights of the parties are determined. (Goad v. Montgomery, supra, 119 Cal. at pp. 557-558.)

Goad also supports defendants position that we must look to the terms of the decree, not the terms of the will. Plaintiffs attempt to distinguish Goad by arguing that it only holds that the decree prevails in the event of an inconsistency, and there is no such inconsistency here. This position fails to recognize the broader language in Goad quoted above. We find Callnon and Goad persuasive on the points cited. When, as here, the decree of distribution states the terms of the trust, the determination of the court becomes the governing terms of the trust, and is thereafter conclusive even if it is erroneous.

Plaintiffs relies on In re Ewer (1918) 177 Cal. 660 and Estate of Cooper (1969) 274 Cal.App.2d 70. Plaintiffs quote the following passage from Ewer: The rule that the decree of distribution prevails over the provisions of the will where the two are in conflict is one of necessity. It should not be applied in cases where the necessity does not exist, and if reasonably possible the decree should be construed so as to be consistent with the will, and so as to incorporate the will into it as a part of its directions, rather than to give it a meaning which conflicts with the provisions of the will. (In re Ewer, supra, at p. 664.)

The Ewer case merely applied the rule stated above, i.e., the will cannot be used to impeach the decree of distribution, but it can be used to explain ambiguity. The court said: The rule is well established that where the decree of distribution is contrary to the provisions in the will, the decree controls and prevails over the terms of the will with respect to the distribution of the property; in other words, that the will cannot be used to impeach the decree of distribution. [Citations.] But while the will cannot be used to impeach the decree, it can be used to explain it where the decree taken alone is uncertain, vague, or ambiguous. (In re Ewer, supra, 177 Cal. at p. 662.) In the present case, there is no ambiguity to be resolved. Plaintiffs simply rely on a provision in the will, the no contest clause, which is not part of the decree of distribution. Although we agree with the stated rule, it is inapplicable to the present situation.

Finally, in Cooper, the state controller appealed an order setting an inheritance tax as though a surviving widow was the owner of inherited property, and her heirs were her beneficiaries. The widow contended that she had only a life estate in the property, and that her heirs should be taxed as remaindermen of a life estate. (Estate of Cooper, supra, 274 Cal.App.2d at p. 73.) The trial court and the appellate court agreed with the widow. The issue turned upon a provision in the order of distribution which the state alleged had the effect of giving the widow a fee simple interest in the property. (Id. at p. 74.) In resolving the issue, the court found that the order distributing the property to the widow incorporated the husbands will by reference, and that it could therefore consider the will in determining the terms of distribution. (Id. at pp. 76-77.) After doing so, the court determined that the widow only received a life estate in her husbands property, not a fee simple interest. (Id. at p. 78.)

In reaching its conclusions, the court applied the rules stated above: In reviewing this conflict we note the rule that a plain and unambiguous direction for distribution necessarily constitutes a judicial construction of a will [citations] and, when final, it cannot, under the doctrine of res judicata be impeached by the will, even if in direct conflict with it; and a decree of distribution is not subject to collateral attack no matter how erroneously it appears to depart from the devisory terms of the will[.] [Citations.] But there are certain well-recognized exceptions to the rule. Thus: (1) where the decree is ambiguous, the will may be used to resolve the ambiguity [citations]; (2) where the decree, by its own terms, incorporates it the will may be looked to for varying purposes, such as: to supply matter omitted from the decree as well as also to clarify the decrees ambiguities [citations]. (Estate of Cooper, supra, 274 Cal.App.2d at p. 75.)

Although plaintiffs rely on the latter exception to contend that the will may supply matters omitted from the decree, the stated exception only applies where the decree incorporates the will into the decree. Such is not the case here. The decree of distribution stands by itself, it states the terms under which the property is to be held in Trust B, and it does not include the no contest clause. We agree with defendant that the no contest clause of the will is inapplicable because it was not part of the decree of distribution.

III. DISPOSITION

The order filed April 18, 2006, which denied plaintiffs petition for determination, is reversed and the case is remanded for further proceedings consistent with this opinion. Each party to bear their own costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

/s/ King

J.

We concur:

/s/ Ramirez

P.J.

/s/ Richli

J.

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^[1]All further statutory references are to the Probate Code unless otherwise indicated.

^[2] On February 2, 2007, defendant requested that we augment the record to include the 1977 amended decree of distribution. By order filed March 28, 2007, we reserved ruling on the request. We now grant the request for augmentation. We note, however, that the 1977 amended decree of distribution refers to a 1976 decree which is not in our record.

^[3] Esther Frank died two days after the petition was filed.

^[4] Since it appears that it is now time to terminate the trust and distribute principal, we express no opinion on the proper method of unwinding the sale transaction and making final distributions. The trial court may do so on any basis consistent with this opinion.